I recently traveled to Singapore, where I gave the keynote address at the Asian Bond Markets Summit. (I’m told they’ll have a video up in a few weeks.) I also had the good fortune to meet two of my most intelligent readers, who both wish to remain anonymous. They provided me with lots of the information that I’ll use in this post—although that doesn’t mean they would agree with everything, indeed they don’t entirely agree with each other (I don’t know if they’ve ever met.)

One of them drove me around to see how average people live in Singapore. Most live in mid-rise apartment blocks that were originally built by the government, and then partially privatized. However the level of property rights is less than what an American would expect, as they are actually just 99 year leases, and there are some restrictions on sales and purchases.

I was sent some information suggesting that a 90 square meter unit (about 1000 square feet) would sell for about $400,000 Singapore dollars (or $320,000 US$.) The interest rates in Singapore are lower than in the US, so mortgages are relatively affordable at a given price point. However prices tend to be on the high side relative to income, as is often the case in prosperous Asian cities, as well as in places like San Francisco. This is especially true in the fully privatized and privately built luxury housing, which the more affluent residents tend to prefer.

Singapore is the East Asian city most similar to an American city, although it’s obviously denser than most US cities. Per capita GDP is also similar to the US. But it turns out that Singapore is actually very different from the US, and in some surprising ways. Consider the following characteristics:

Free trade and investment. Medical care provided via HSAs, with very little government spending. No unemployment compensation. Social security private accounts. A 20% top income tax rate, zero percent on capital gains. Income is slightly more unequal than in the US, which means far more unequal than the typical rich country. Far more millionaires per capita than any other country in the world—a true “ownership society.” Lots of immigration. Rated second most free market economy in the world by the conservative Heritage Foundation. (Number one if you consider Hong Kong to be part of China.)

Sounds like the sort of place a free market economist would like, doesn’t it? But it isn’t. My guide told me that when western academics come to Singapore, the leftists tend to love the place and the libertarians often go home in disgust. It turns out that Singapore is a lot like that vase/face optical illusion–people see it one way or another, but rarely both at once. I’m going to try to see both sides.

It turns out that about 80% of the population lives in those public housing projects that I mentioned. From a purely visual perspective, they look much nicer than the ones you see in China. The walls seem freshly painted with pastel colors, whereas in China the walls are stained with pollution, and the paint is often peeling. (Singapore has very little pollution by Asian standards.) But I think most middle class Americans would be disappointed by the home of a typical middle class Singaporean. It seems that Singapore is a place where the poor and rich do really well, but the middle class only so-so. I’m told that (from the outside) the home of someone making $30,000 per year looks almost the same as that of someone making $130,000/year. At best the richer family has a slightly bigger unit, and a nicer location. Both of my sources indicated that it wasn’t quite accurate to say Singapore has no poverty, but when I asked if they could show me some slums, both said that there aren’t any. I gather the situation is sort of like the Nordic countries or Switzerland; there are some poor people here and there, but no significant slums of the sort you see in America.

So why do leftists like Singapore so much? Consider that Keynes once said that poverty is ugly. Singapore is certainly not ugly (although it’s also not beautiful.) It has universal health care. It has very strong environmental laws such as congestion pricing and ultra high taxes on cars. As a result the middle class relies on the extensive system of mass transit. That doesn’t mean everything goes smoothly. The population has recently grown quite a bit (via immigration), putting some pressure on the housing stock and also increasing traffic. Even so, traffic is far lighter than other Asian cities. Things seem to work in Singapore.

Moderate leftists tend to be utilitarians. And Singapore seems like a place run by utilitarians. If you believe in diminishing marginal utility, then you’d be impressed by a place where almost everyone lives in the same type of place. In America we have beautiful upper middle class towns like my own Newton, Massachusetts, and lots of ugly low income towns. Singapore’s not like that, despite having slightly more income inequality. My theory is that leftists don’t really mind a place where income is unequal, they don’t like places where income looks unequal. In my town liberal millionaires typically drive Camrys.

My utilitarian theory of Singapore governance doesn’t explain why it’s such a great place for the rich. Why a 20% top rate? Perhaps because Singapore’s small size makes it highly susceptible to Laffer curve effects. The country has seen massive immigration in recent years, often of very high skilled people. How much would that decrease if the top rate were say 50%, as the US will have next year? Even from a strictly utilitarian perspective, bringing in lots of high earners is a great deal for Singapore’s poor and lower middle class. The rich pay lots more in taxes than they use in public services.

One argument against my hypothesis is that housing for Singapore’s rich is very expensive, and that’s partly because of the government’s extremely restrictive land use policies. The sort of mansion that would cost $800,000 in Texas would cost $15,000,000 in Singapore. Residential-zoned land costs $800 a square foot. But one also needs to remember that Singapore is a very small place, and the rich have very big appetites. Consider some advantages of Singapore for the ultra-rich:

1. Who needs a McMansion when you have a small but ultra-chic condo in Singapore? If you want a mansion, buy it as a second home in Australia or Florida or Vancouver or Phuket.

2. Starting next year Texans will only be able to keep 56% of their income, and 76% of cap gains. Singaporeans will keep 80% 0f income and 100% of cap gains. You can buy a lot more jewelry when you travel. Or second homes. [Update: I meant ultra-wealthy Texans. Texas has no state income tax, but the federal top rate rises to almost 44% next year.]

3. The average airport in Singapore is as good as the best airport in the world (that’s sort of a joke, but true.) And the rich fly a lot. After my plane landed in Singapore I was in my hotel within 40 minutes. When I returned to Boston I was still in the immigration line after 40 minutes.

4. There’s not much traffic because only the wealthier Singaporeans can afford cars. The service on airlines serving Singapore is excellent, as is the service in hotels. In America . . . not so much. There’s a new casino, and lots of great restaurants. The only downside is high-end culture—you still need to go to NYC or London of Paris, but the Asian nouveau riche is less interested in avant garde theatre than the western “old rich.”

Overall a great place to be rich or poor, and an OK place to be middle class. It’s still way too paternalistic for my taste, and the government does waste a lot of Singaporean savings on questionable projects like water desalination, but there are many worse places in the world from a utilitarian perspective.

A few other random notes:

1. They raised the fine for littering from $300 to $500 when I was here. But my source told me that the famous draconian legal penalties are something of a myth. It seems the government will crack down on something like people using cell phones in cars (with a 3 month jail sentence), but then let up after a few months. They’ve made their point, and the people become so well behaved that the laws hardly need to be enforced. There are very few police on the streets, but nonetheless very low crime rates.

2. The upper middle class is called the “sandwich class”. Not rich enough to enjoy the good life and living in the same sort of places as the lower middle class.

3. When my source was describing Singapore I must have interjected “that reminds me of China” a dozen times. Actually the two places are quite different. But I think there are many deep similarities as well. He told me migrants from China often adjust better than migrants from Hong Kong, as they are more used to the controlled Singapore system, whereas Hong Kong is more laissez-faire. It seems to me that Singapore is a sort of model for the Chinese government. Will China get stuck in the middle income trap? I doubt it. If it does, the key difference will probably be the much higher level of corruption in China than Singapore. Singapore is one possible future for China, but not the only one. With all of Singapore’s flaws (and there are many) most of China’s alternative futures are far worse.

4. Most Singaporeans are not particularly bothered by the soft authoritarianism of the Singapore government. That may be because in the past the government was more overtly oppressive (another thing that reminds me of China.)

5. Chinese Singaporeans (3/4 of the total) look down on Malay Singaporeans. But isn’t that always true when there are large income differentials? The high immigration policy has been unpopular, perhaps because of increased crowding and soaring property prices. The Chinese have a very low birth rate, and the immigration policy may be aimed at “re-stocking” that ethnic group. There are also some Indians and a few Westerners. The official language is English.

The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous–and it doesn’t deliver the goods. In short, we dislike it, and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed. . . .

There is one more explanation, I think, of the re-orientation of our minds. The nineteenth century carried to extravagant lengths the criterion of what one can call for short “the financial results,” as a test of the advisability of any course of action sponsored by private or by collective action. The whole conduct of life was made into a sort of parody of an accountant’s nightmare. Instead of using their vastly increased material and technical resources to build a wonder city, the men of the nineteenth century built slums; and they thought it right and advisable to build slums because slums, on the test of private enterprise, “paid,” whereas the wonder city would, they thought, have been an act of foolish extravagance, which would, in the imbecile idiom of the financial fashion, have “mortgaged the future”–though how the construction to-day of great and glorious works can impoverish the future, no man can see until his mind is beset by false analogies from an irrelevant accountancy.

PPS. GDP per capita is about the same in nominal terms, but Singapore is about 20% higher in PPP terms. Indeed it’s the richest “real country” of more than a million people, in three of four surveys. However one of my sources says that the cost of living is not lower than in America, as the expensive real estate and cars offset the cheaper services. And a much smaller share of Singapore’s GDP shows up in the form of disposable income than in the US, for various reasons.

“Overall a great place to be rich or poor, and an OK place to be middle class. It’s still way too paternalistic for my taste, and the government does waste a lot of Singaporean savings on questionable projects like water desalination, but there are many worse places in the world from a utilitarian perspective.”

Water desalinization could be viewed as a security project as opposed to a method of obtaining water cheaply; Malaysia and Singapore have been dueling over water supply issues for decades.

Regarding water: they do have cheaper options. Singapore currently favours reverse osmosis, which is fantastically expensive. Unfortunately, the other cheaper option which they initially resorted to (distillation of seawater) turned out to be also dependent on another neighbour, namely Indonesia’s cheap natural gas, for the required electricity. This turned out to be another diplomatic flashpoint, particularly when Singapore’s land reclamation began to annoy Jakarta, which has since prohibited sand exports to Singapore.

Nice article. And since we speak about Singapore, I would really love to see these:

1) What about famous working hours? I know that Singaporean 2,300 hours worked a year is not exception in East Asia, or at least in Korea, Hong-Kong and Taiwan. But I think that it is far more than Japanese/US 1,700.

2) How expensive and effective is privatized healthcare/social security? I admit that there is a lot of value in freedom of choice, but effectiveness matters too

3) What part of government income stems from Sovereing funds? It is all and well for Singapore to have low taxes, but there may have been price paid for it. If past generations in Singapore made large sacrifices in the form of forced government savings, then this may explain opposition to emigration.

I thing a similar story may be valid for China. You wrote about it yourself – the whole generation complies with government policy of forced savings (named as “currency manipulation” by some), so it is possible than in 20 years time there could be low taxes in China because government services will be financed from these savings.

I don’t say that there is something necessarily wrong with this. Only that a culture (yes, I used ‘c’ word) that is capable to endure such a government policies may by the same virtue be more tolerant to other policies observed as autocratic in the west. So there may be some sort of paradox in this – you have this wonderful poster child of libertarian economic policies, but the other side of the same coin is that such a society will be more tolerant to autocratic regime with regards to civic liberties.

(2) very effective, although it has to be pointed out that there exists Israel-style national service, a non-Western diet, and the population is relatively young.

(3) Interest and investment income is at 9-13% of annual revenue. There are large swings, though, because tax revenue changes much more than the investment income does.

Worth pointing out that Singapore’s SWF assets come from two sources: former foreign reserves and former nationalized companies. The returns on forced savings are returned to said savers, by and large.

JV, The main reason Singapore’s taxes are low is that their government spending is low. China isn’t saving nearly enough to materially impact their tax rates 30 or 40 years from now. Singapore is tied with Japan for the longest life expectancy, although that’s only loosely correlated with health care.

David, Thanks for that very helpful info.

Steve, That’s very depressing, but approximately true.

DOB, I don’t fully understand all the reasons, but forced saving is one factor.

A peculiarity in Singapore’s system is savers actually have an amount of discretion over how much is saved, when they can withdraw it and what to spend it on; all of this is still classified as social security taxes/payments at “IMF statistics” sort of level.

This is possible because these are defined-contribution private accounts, so the government can both allow its migrant millionaires to opt out, or conversely allow its middle-classes to spend their savings on housing immediately, instead of waiting for a pension payout.

Since the state savings fund has an interest rate that is actually greater than the historic market return, local people do not generally seek to opt out of it. Singaporeans really do want to save a lot, and seek these higher rates. The Chinese official’s wife with illicit millions might prefer to keep it on the quiet, though.

+1 on Primo’s point. I’ve been through U.S. customs and immigration at least two dozen times this year and it’s never taken more than 60 seconds. GE also gets you TSA Pre-Check which saves a huge amount of time and hassle on domestic travel.

Until you understand that assymetric returns on capital have a huge impact on the shape of the Laffer curve any discussion of tax effects on growth is rooted in near complete ignorance.

Higher average population allows greater specialization of labor and as a result higher efficiency and growth. Most commenters seem to ignore this when discussing Spore.

Request to anyone commenting on healthcare. Please think through the difference between health, healthcare, medical care, and health insurance before you post….especially if you are going to cite mortality and morbidity statistics.

It is often said that Singapore has more open immigration than the US but only in ways that most lovers of free immigration (I am not one) would not approve of. They have rules explicitly favoring highly talented immigrants and ethnic Chinese. Non-Chinese low wage workers are allowed to work but cannot be guaranteed citizenship and they and their offspring can and are credibly sent away even after 20 years. Frankly, I think many an opponent of the US immigration system (from a restrictionist perspective) would gladly accept a variant of the Singaporean rules on low wage immigrants if it could be reliably enforced. It’s easier to let in low wage workers if it’s also easy for you to send them away. And forget about illegals who enter the country, stay for x years, produce children who become legal and then suck in their distant relatives.

nice and balanced post, I’d agree with a lot of points. As you point out SG has the statistics of a lot of other rich countries but it’s hard to explain how Singapore works. The system is just built very differently from the West.

Some random remarks, also re: David and JV Dubois’ comments:
– the sandwich class is the one with propensity to emigrate. Imagine what your million dollar condo can buy in Australia. Or Canada. While in SG a $ 2 mio condo won’t be a huge upgrade from the $ 1 mio kind. AU and CA are the usual destinations btw, not the US. Just among my son’s friends’ families, one has left for CA last year, and one plans to leave for AU next year. The reasons they give are always the same – they expect a better future there for the kids.
– you’re spot on about the rich, they don’t really live here anyway, they travel a lot and a $ 3 mio penthouse for one week a month is sure a nice thing to have. The low top rate attracts the wealthy to park their companies and wealth in SG, which brings FDI, jobs, and boosts real estate valuations. Besides, the middle class in SG pays their taxes as consumption taxes (cars, alcohol etc.) rather than income taxes. It’s a life cycle thing: maybe you can do without a car for a while. But at some point in your life, you either make it or quite possibly your job will demand it: you will have a car. And then you pay your taxes through the car. A high top income tax rate isn’t even needed.
– the gov. savings scheme is really more like a 401k. You have some choice in how you save or invest (gov. account, mutual funds, or mortgage payments towards your home) but there is not that much freedom in when you can withdraw – you have to reach pension age. Even then you can’t withdraw the funds all at once.
– most people opt to put their mandatory savings into the mortgage of their home, which is encouraged by the system. Flipside is, once you need your retirement money you may have to sell your home (that’s where your savings are now located). Often, old folks then move in with their kids, which is also encouraged for family value reasons.
– SG has very high working hours, both statistically and from empirical observation. I commonly receive admin e-mails written past 6 pm, even 7 pm, or Saturdays. And that’s academia. A recent study showed somewhere around 80% of employees routinely work overtime or take work home. SG has low productivity in terms of GDP/hour worked (similar to S Korea) and low and even falling productivity has been seen as a major policy concern for years now.
– finally, this just in:http://www.gallup.com/poll/158882/singapore-ranks-least-emotional-country-world.aspx
Another facet of Singapore.

This… sounds like paradise. My parents always threatened to move there when I was younger. They also threatened to send me to boarding school, which I also later realized wasn’t as bad as they made it sound.

Are there any poor people/beggars on major street corners? Then it’s better than Australia.

Yes, most elite leftists are all basically Robert Frank. Some take it somewhat further though like Galbraith, believing that public provision is intrinsically better because more moral. But only a few are as deeply affectatious and misguided as Keynes. I hope that once again you disagree with him. Paternalism is common on both sides.

Yes I like the only airport in Singapore too, been through it many times. Zipping around from section to section is fun, and there’s great spots to read, eat, watch movies or just sleep. (The internal hotel is quite nice too.)

Why is water desalination questionable? Seems like the future to me.

I notice a conspicuous lack of comment on the Singaporean political system…

“In my town liberal millionaires typically drive Camrys.”

If only these magnanimous liberals could go a little further, be like my kind of people. Doesn’t matter what car you drive, everyone gets treated with the same respect, friendliness, interest and concern. That’s real equality.

Did you actually use the public transport? As in did you pay for a ticket to use the underground train?
I live in London and I was in Singapore in March. The prices are dirt cheap to the point of being unbelievable. There were journeys for the equivalent of 50p. There is no journey, even on a bus, possible here in London for that amount.
With a system like that they can tax driving as high as they want.
I find the variable congestion pricing system also interesting …rising and falling depending on how bad traffic is.

I agree with most of it so what follows are more by way of additional information.

1. Yes, for the most part, the lifestyles of the lower and upper middle class are not as widely differentiated, e.g., in the size and quality of housing. But the point should not be overstated. Public housing apartments can range from below 90 sq m to over 130 sq m. You can be stuck in the middle of a densely packed estate, or have your bedroom windows facing the sea, or the unlikely forest. Some of these differences don’t show up as much in the initial prices when purchased from the government, but will definitely be manifest at resale (I’m sure I paid an extra 30k for the view from my bedroom and kitchen windows). And very importantly, you can spend a small fortune doing up the insides (marble floors for the living room and wood panels for the bedrooms, built in cabinets, air conditioning for every room, Italian design furniture, etc.), or you might be barebones–highly done up units rival private apartments in internal decor. But–and this is in line with your comment about being vs looking unequal–you won’t get to see the differences from the outside.

2. I don’t remember the details but my impression was that there has been a deliberate move from taxing income to taxing consumption. So as mbk puts it the top rates don’t even have to be that high. That said, outside of cars, alcohol, and cigarettes (and I don’t care about any of them), it’s still not that high. So all considered, the place is low tax.

3. Poor people exist, but you can walk all day around town, the housing estates, etc. and not see any. The first time I went to the US (SF Bay Area), the thing that really gave me culture shock was the homeless and the panhandling, things I simply never experienced growing up and living in Singapore (and my family wasn’t affluent when I was growing up). Incidentally, welfare (state, community base, private) for the genuinely indigent exists and the poor are helped, as far as I can find out, but the schemes not purely talked about. And the technocrats that run the place avoid the word “welfare” in this connection like the plague. They seem to take the perverse incentive business extremely seriously.

4. The forced savings thing, or “CPF”. Every month, 20% of my paycheck goes into my CPF account, plus another 16% from the employer. (The numbers vary depending on one’s age group and current macro economic concerns.) (Incidentally, by adjusting the latter number, the government can give everyone a pay cut or pay rise without any changes to anyone’s employment contract. Think of the macro implications.) Anyway, the total contribution is divided into three accounts. The ordinary account, which can be used for payments on public housing, children’s tertiary education in the local universities), the special account, which is strictly for retirement and can’t be drawn until a certain age is reached, etc. And a medical account, which can be used to pay large medical bills and purchase medical insurance coverage. The accounts earn interest, often at higher than what can be had on the market in low risk instruments. The proportions changes according to age, with more going to the medical and special accounts as one gets older. Funds in the ordinary and special accounts over a certain threshold can also be invested in approved instruments if one so desires.

There are some very good posts here I have to say. So from what I understand, the low taxes (and official Government spending) in Singapore are possible because of private social security and health coverage. However from what Philemon said, in practice the size of the contribution (around 36% of the labor cost) is in line with what one experiences in European countries (Even in Europe healthcare and pension tax schemes dwarf the other programs such as unemployment insurance etc.)
.
So in the end of the day your disposable income in Singapore is similar to what you have in your average low tax European country (e.g Ireland or Cyprus or countries in Eastern Europe like Slovakia or Baltic countries). Actually even this may not be valid as mandatory state schemes in Europe that I know of are capped.
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So the big deal with Singapore is low capital gains tax. And I am afraid that here Singapore is an Ireland of East Asia. In 2009 The Singaporen GDP was only 61% of the official Singaporean GDP. So Singapore is really used similarly to how Ireland is used in Europe – it is a popular resting place for money funneled through internal accounting for multinational global companies (especially pharma and financial industry). And this is a winner takes it all contest. If there would arise even better destination for tax avoidance schemes, Singaporean GDP would plummet by 31% and all “government spending to GDP” measures would look more like in the West.

In case of any misunderstandings: the normal wage ceiling for CPF contribution 5,000SGD. In other words, the max that can be contributed per month is 1,000 (employee) + 800 (employer). This makes for around 31%, not 36% of labor cost (1,800 / 5,000 + 800). Yes, it’s a bit confusing to outsiders but the “gross monthly pay” is usually stated excluding the employer’s CPF contribution.

Note also that CPF applies as a matter of default only if you draw a wage. If you are self-employed, you can voluntarily contribute to your ordinary and special, but it’s not automatic. Contribution to one’s medical account is compulsory for anyone with a yearly income of at least 6,000SGD.

Re: our point that the size of the contribution being in line with the schemes for pension and healthcare in European countries–indeed. The difference, as I see it, is not in the relative spending, but in the extent to which individuals are made to be responsible for making their own decisions and bearing the costs. (Collect taxes, centrally pay for or provide services, and ration accordingly vs., force each individual to save a portion of income, and leave it to them to decide when and how to use the funds saved, given restrictions.)

Fascinating write-up – was this your first time spending real time in Singapore?

There are very, very poor pockets, but you have to look to find them. They don’t look like slums but the apartments are tiny (less than 600 sq ft), the amenities non-existent, and the inhabitants largely ignored. Some areas – Havelock Road (in the prime minister’s father’s constituency, no less!), Chin Swee Road, Ghim Moh (although it’s gentrifying), Whampoa. Sadly, many of them are occupied by older folks who are essentially waiting to die. (I work with several charities, so this is anecdotal but representative)

In a related point, the shape of the Gini curves would show something very interesting. The very poor (bottom decile) have a pretty shit time of it, while the normal poor (11th-30th) are probably better off than in other countries from a wealth perspective, but their real incomes are being eroded (quickly) by inflation. The large sandwich class face a different problem in that the gap between them and the top two deciles is not only growing but starting to seem insurmountable. Socio-economic mobility for the indigenous population is a lot tougher when immigration is disproportionately skewed.

Traffic is not at Beijing/Bangkok levels, but it’s deteriorated significantly since I moved back, along with housing stock quality and general infrastructure. It’s not just anecdotal – flood incidence, apartment sizes and commuting times are all symptoms of an overcrowding which was not anticipated nor planned for.

In an earlier comment you made an error and repeated it in this post: “That’s wrong, the 3.8% applies to both investment and wage income.”

Here is the bill text (the key words being “lesser of”):

“APPLICATION TO INDIVIDUALS.””In the case of an individual,
there is hereby imposed (in addition to any other tax
imposed by this subtitle) for each taxable year a tax equal
to 3.8 percent of the lesser of””
”(A) net investment income for such taxable year, or
”(B) the excess (if any) of””
”(i) the modified adjusted gross income for such
taxable year, over
”(ii) the threshold amount.”

“”(c) NET INVESTMENT INCOME.””For purposes of this chapter””
”(1) IN GENERAL.””The term ‘net investment income’ means
the excess (if any) of””
”(A) the sum of””
”(i) gross income from interest, dividends, annuities,
royalties, and rents, other than such income
which is derived in the ordinary course of a trade
or business not described in paragraph (2),
”(ii) other gross income derived from a trade or
business described in paragraph (2), and
”(iii) net gain (to the extent taken into account
in computing taxable income) attributable to the disposition
of property other than property held in a trade
or business not described in paragraph”

It is possible that someone pays 44% on the wage income. I don’t think anyone disputed that, but it is not a general case as you seem to believe.

mbk, Great comment, very informative. The emotion data is interesting. Philippines has gone from one of the richest East Asian countries to being one of the poorest. Singapore has gone in the other direction. Singapore is the least emotional place in the world, the Philippines is the most emotional. Worth a blog post?

Maybe utility is a zero sum game. What you gain from more work and efficiency you lose in less spontineity.

Saturos, You said;

“Doesn’t matter what car you drive, everyone gets treated with the same respect, friendliness, interest and concern. That’s real equality.”

Good point—it’s why I like Australia.

Feyi, I usually use subways in foreign cities, but the taxis in Singapore were so cheap I didn’t bother.

Philomen, Very interesting information. My sense is that most progressives care much more about “external appearance inequality” than they do about who has marble floors or a sea view. That’s not necessarily a knock on them, I suppose I feel that way too at a gut level (although logically a utilitarian like me should care about marble floor inequality too.)

I also agree with your reply to JV.

JV, I think you mean GDP is bigger than GNP. You make a good point in the Europe comparison, but I have two reservations. One is the incentive issue–see Philomen’s reply to you. The other is that unlike Europe the Singapore government actually saves those payments. The pensions are fully funded, not a pay as you go. That means the heavy saving in Singapore implies that the citizens gradually build up a big nest egg, which is less true in Europe.

Indeed one of my sources told me that “The Singapore people aren’t rich, the Singapore government is rich.” That means that the various 401k accounts in Singapore actually understate the wealth of the country. I’d estimate that Singapore could abolish all taxes for 10 years, and then start up again with a larger national debt, but nothing unmanageable. I’m assuming they continue all the revenue from land sales, environmental charges, etc. Their government is very rich, despite low taxes. which (unlike Europe) bodes well for the future.

Charlie, It applies to both wage and investment income over the threshold, that’s clear. Which one are you contesting? This isn’t really an issue under dispute–as far as I know 100% of tax experts agree with me.

Charlie, If someone makes $260,000 family income, and they have $20,000 investment income, then they pay 3.8% income taxes on $10,000 of the investment income (plus regular income taxes). If they have $5000 in investment income then they pay income taxes on the full $5000.

“My theory is that leftists don’t really mind a place where income is unequal, they don’t like places where income looks unequal.”

I’d suggest that this is misleading, if not false. I think that most progressives -do- care about pure monetary/income inequality, but care much -more- about “practical” inequality. That is, if the “poor” have decent housing, access to education, jobs, transportation, health care, etc., then things aren’t too bad, even if there is a significant income gap between “rich” and “poor”.

Inadequate housing, education, health care, etc. may indeed make poverty look bad, but that’s because such things actually -are- bad — and this is what progressives most strongly object to.

One of the best articles I have read on this subject. You had good ‘insiders’ giving good information. I must say this latest artificial immigration has changed the feel and face of Singapore. I wonder what Americans would do if we stared flying in over a million Caucasians to …keep the status quo…that is basically what Singapore has done with encouraging a predominantly Chinese influx of immigrants. But then you said it..we Singaporeans have learned to live with big brother taking care of us…and so far he is doing such a great job lets try not to rock the boat!

Do we agree that in the second case you gave when the investment income is $5000, that the marginal rate for labor income is not 44%?

That is the issue I (and other commeters) pointed out that you took issue with.

Here is the example I showed you that you had a problem with (in which case at least one tax expert at fidelity doesn’t agree with you)

“Paul and Ann’s MAGI is $372,000, of which $330,000 is wages and $42,000 net investment income. Their MAGI is $122,000 over the $250,000 threshold for married couples filing jointly. They’ll owe the 3.8% on their $42,000 of net investment income, because it is less than the amount they are over the MAGI threshold ($122,000). They’ll also owe 0.9% on the $80,000 that their wages are over the $250,000 earned income threshold for married couples filing jointly. Their total Medicare tax surcharge will be $2,316, which includes $1,596 (3.8% of $42,000) and $720 (0.9% on $80,000).”

In this example their paying 40.5% (39.6 + .9) on an additional dollar of wage income and 43.4% on an additional dollar of investment income.

Greg, Yes, that was sloppy of me. I did indicate that leftists like the mass transit, universal health care, etc. I meant that when it comes to pure private consumption, done in private, they care more about how houses look from the street, rather than what the furniture and other amenities are like.

Charlie, No, the 0.9% is the increase in the wage tax from the health care bill, there was already a 2.9% wage tax on the rich.

[…] the World? Posted on November 25, 2012 by admin In an excellent Singapore econ-travelogue, Scott Sumner writes: My theory is that leftists don’t really mind a place where income is unequal, they […]

Scott re: Ipsophage’s comment on the bottom decile, next time in SG look out for the food court workers. Old, skinny “uncles” whose 35% monthly savings on their $800 jobs over 30 years did not give them enough retirement savings to live at today’s prices. Now they live in with their kids and wipe tables for $700/month. Same with scrap collectors and the like. The old and poor also work, that’s the difference with the US, that’s part of how welfare works here (it’s called “workfare”).

On the emotion data, the contrast between SG and the Philippines did not escape my attention. Trouble is that other highly “emotionless” countries are in Eastern Europe and not doing well financially, while other “emotional” countries include a bunch of middle Eastern countries that sometimes do quite well e.g. (Qatar). And in a twist to this, as a society I’d put the Philippines as the closest thing to the US that Asia has to offer – individualism, religion, guns, it’s all there (!sarcasm alert!). Doesn’t seem to work for wealth creation there, though. So it’s likely to be multi-factorial. Still: I long suspected that wealth creation has to do with social interaction. Countries where your immediate social ties are stronger than abstract rules – the law – produce more cozy, emotional, warm societies. The flip side of the coin is that these countries also tend to be more corrupt because again, they’re less rule bound and more bound to immediate social ties. The Middle East and South America fit here. Strongly rule based societies are fair, just, and good for business: Northern Europe, Singapore, the US. But they don’t produce emotional affect very well (but, see below on the US). In a weird way that may make people strive even harder for money because if there isn’t much emotion to be had in life, money will do. Diamonds are forever, eh? So I suppose it really is a trade off.

SG does sometimes feel like everyone is just doing their duty, without particular feelings attached to it. That’s great if you’re a bus driver but not so great if you’re an artist. When we watch those US talent shows with my wife we often joke at someone’s “Singaporean style” performance. That is, a performance that is competently executed, flawless technically, but without putting any heart in it. I’ve had that feeling with live bands in SG, and it’s a criticism that has been leveled before at many East Asian classical musicians too. Note that Filipino musicians by contrast are sought after all over Asia, they’re an important part of the Filipino diaspora. And in Singapore Filipinos are often put in customer service positions.

America is an interesting case in itself. High emotion content apparently. But why? My take, America’s great invention is to supply hope to the people. Its societal mores are derived from a strongly rule based and rather cold protestant culture but it supplies the strong emotion of hope, through its foundational myth. (US-)Americans put up with a lot from their living conditions because they get this invaluable feeling that some time, some day, they will get their break, they will make it. And in truth, some do. Now, SG isn’t like the US. Many people’s lives are comfortable – a rising tide lifts all boats – but in SG it seems social mobility happens more between generations than within generations. Someone’s kids may make it to a different social class if they dot all the i’s and cross all the t’s since young. Hence the obsession with the kids’ grades. But within a generation, you get the feeling that people have their place in society and always will. Insert here Ipsophage’s comment about the gap between the sandwich class and the upper decile. So here’s a possible explanation for the missing emotions: no hopes raised, no dreams dashed.

This is of course just anecdotal observation with a lot of speculation. What drives countries’ successes is actually quite mysterious, in my opinion.

Scott, as I think I suggested, the idea that what is important is “how houses look from the street” (or how anything “looks”) misses the point. Progressives and “leftists” tend to be concerned about such things as substandard housing. While this tends to “look bad”, the problem is not so much the “look” as the -being- substandard. Progressives tend to be most concerned that everyone (including the “poor”) have adequate housing, health, etc. Whether some people’s houses have marble floors while other people’s have only linoleum may be of concern to some, but it is a much less important one.

5. Inflation recently has been on higher end of the band, coupled with strong currency appreciation, this has made it a high cost of living place, versus being a place where cost of living was a small fraction of the western world.

As others have pointed out there is a bit of a gap between GDP and GNI in Singapore, but more importantly the ratio of household income to GDP is a lot lower in Singapore than in other rich countries, and the ratio of household final consumption expenditure to GDP is very low (41% in 2011, according to the World Bank). Given the level of inequality in Singapore this probably means that household wellbeing is lower for the vast majority of people than in countries with lower GDP, but higher household income and consumption ratios and lower inequality.

It is not entirely clear to me whether all of the many migrant workers in Singapore are actually counted in the population for working out GDP per capita or household income/consumption per capita.

As has been pointed out the level of contributions from employers and employees to the provident fund can be up to 35% of ernings with a ceiling. If this was done through a conventional social security system it would probably be equivalent to 10-15% of GDP, which would put the Singaporean tax take at about the level of Australia’s – low compared to Europe, but not low compared to other parts of Asia.

Sorry – Ipsophage? No offence, but are you seriously calling yourself that? (“Saturos” has the advantage of meaning nothing at all.)

Scott, yeah, you don’t really appreciate it until you leave, but our society is pretty stellar. But I still wish we had Singapore’s economy, especially now that our mining boom is giving out. Speaking of which – Glenn Stevens has recently started talking about “headwinds” (like a slowing mining sector) which are retarding Australia’s demand-side, as if he can’t do anything about them. Lars is right, there’s nothing special about the RBA.

mbk, Excellent comment. I really don’t know enough about Singapore to add anything. Of course “warm societies” also tend to be more violent societies. Love and hate are two sides of the same coin, aren’t they?

Oddly those “cold” Nordic countries seem better at pop music than southern Europe (in per capita terms) It’s more a question of how emotions are expressed, not whether people have them.

Greg, You seem to think progressives are fully utilitarian. I certainly agree that they tend in that direction, but I think they have their biases. For instance progressives are probably more distraught by the poor lacking indoor plumbing than lacking a cell phone or TV, even though we know from 3rd world data that people think TVs and cell phones are more important to their perceived well being. There’s an aesthetic element here–lack of indoor plumbing seems more “shocking.” That’s why the external look of buildings is so important.

Peter, I agree, but would insist that forced saving should not be regarded as taxes. I’d much rather the government force me to save 30% of my money than make me pay a 30% tax. Indeed I already voluntarily save more than 30%, but don’t voluntarily pay taxes. If I had an HSA I’d consume much less healthcare, and hence be richer.

1. Regarding JVD’s point about money parking – a better metric for this is instead of looking at the difference in GDP against GNI (which measures incomes), it’d probably be better to look at FDI statistics (flows) or even the International Investment Position (stocks). For 2011, the retained earnings portion of Singapore’s inward FDI was approximately 49.5% of the global total(!). There’s also gaps in reported exports/imports against the numbers reported in other trading partners i.e. trade misinvoicing. The conclusion is that there is significant MNC “booking” of profits in Singapore, even if the actual economic activity is taking place elsewhere.

2. Nirav pointed out one peculiarity with Singapore’s monetary policy management. I’ll add a few of my own:
– monetary policy decisions are only taken twice a year;
– the actual basket of currencies being targeted is not disclosed, though it appears to be trade weighted;
– liquidity management is schizophrenic. I don’t know if anybody’s pointed this out before, but Singapore ostensibly has a very high public debt to GDP ratio of over 100%. Part of this is that CPF earnings are “guaranteed” through investment in specially issued long dated government bonds. The other part is more interesting – it appears open market operations to manage financial system liquidity is conducted using short term Treasury bills instead of monetary authority debt. The excess liquidity shows up as govt deposits at MAS (currently SG$150b and counting; or nearly 50% of GDP). I’d love your take on this Scott. The arrangement seems needlessly complicated to me, though to be fair, MAS has been authorised to start issuing their own debt in 2010.

3. Peter’s observation of per capita GDP is spot on – there is a significant itinerant population that commutes daily between Singapore and the Malaysian state of Johore, which are connected via a bridge over the Straits of Johor (another one is due to open soon) and where property and living expenses are significantly cheaper than in Singapore. These workers are not likely to be captured in a population census survey.

Scott, I think that progressives are -mostly- utilitarian. We all have our biases, of course, but there is no avoiding that. That said, I don’t know anyone who fetishizes indoor plumbing in and of itself; access to safe water and proper sanitation, yes, as that is critical to keeping a population healthy — but that’s not necessarily indoor plumbing. And indeed, saying that much already highlights my point: lack of plumbing may be “ugly”, but it is also, usually, a sign of lack of safe drinking water — which is, again, something more than just “looking bad”.

I have long believed and said that Democrats seemed more concerned about aesthetics than real help for the poor. They seem to want to turn poor people into middle class people. That is why they are so concerned with obesity, treatment for drug use, schooling etc.

Something else to add to quality of life in Singapore — middle class Singaporeans may live in small apartments, but no matter what part of the island they live on, they are surrounded by first-rate public spaces, parks, playgrounds, libraries, and hawker centres with inexpensive local food, etc which are immaculately maintained by the government. And they use them; if you walk around any evening or weekend, the public parks and plazas are full of people out enjoying themselves. Very different from the US where in many communities you need an enormous house because that is where you spend all your leisure time (in large part because there are no beautifully maintained public amenities).

Love the comment about the weather being terrible half the year. Singapore sits very near the equator, so one must presume LH means the half of the year between 7 AM and 7 PM.

It is a bit of a surprise to see little to no mention that perhaps 80% of the GNP rolls up in some form or fashion to Temasek or GIC. It’s hard to imagine many other countries where that level of government involvement in the economy would be tolerated – or sustainable.

Likewise a surprise in a libertarian blog to see no mention of the single party government and the outrageous libel laws that allow it to “legally” snuff out all but the mildest opposition.

Wonderful assessment of Singapore. Although this is a bit anecdotal, but one of the possible reasons that China is very similar to Singapore is due to the close friendship between Deng Xiaoping and Lee Kuan Yew. Deng paid numerous visits to Lee in the 70s and a lot of the reforms in China are modeled after Singapore.

Also, the water desalination issue is a highly controversial issue that is based on historical and security reasons as mentioned by fellow commenter, Typhoon Jim. For greater detail about the water issue, I think the following link has a pretty good account:

I understand they are just blogs, but they are very interesting accounts that provide on the ground perspectives.

As an aside, in relation to your note about Singaporean Chinese looking down on Singaporean Malays, there is sort of a dark joke that the Singaporean Malays look down on the Malaysian Malays. Here are some comments on that:

I agree that the incentive side of things is quite different, but I think the difference between European and Singapore Health service it’s not so great. They have a quite extensive subsidy system (and full subsidies for unemployed). Half the hospitals are directly managed by the state (which is not far from France or Germany). They have a single payer systems in many ways. The subsidies are quite progressive. It sounds a bad deal for the middle class frankly.
It also seems to require very low level of corruption. The saving account systems (plus subsidies) seems built for fraud: you find a low income person, prescribe him useless tests that you don’t perform, compensate him directly in cash for his part (which as cash in hand he will probably value more anyway) and get the money back from the government plus 80% subsidies. If an inspector comes checking, you just give him a slice.
I think it’s a bit like beating the stock market. Given enough people trying some tiny percentage will actually manage. You can probably be lucky and find enough honest people to run such a system. But that doesn’t mean you can replicate it… And once a small percentage starts cheating, more people will find it acceptable and the entire system falls down…

If you look at actual spending, they spend about 2/3 of the UK. Given that health is largely services, that’s less impressive (but still very very good).

But my main objection is still size. It’s much easier to manage a small company/state. There is a clear advantage in being small.

My wife grew up in a communist country and the only thing most of her relatives miss from the past is the health service (as it was reasonably good and available to everyone). Nobody could get cutting edge therapies, but the basics were very well covered. I think there is a lesson about the specialness of health services in there…

BTW hishamh is probably too humble to mention this here, but his blog is definitely worth reading. It is the most highly regarded economics blog in Malaysia (I am not exaggerating). Hisham has previously indicated his sympathies with market monetarism, though I think like you, he is skeptical of NGDP targeting for developing economies: http://econsmalaysia.blogspot.com/2011/10/david-beckworth-on-market-monetarism.html

When Lars Christensen recently visited Malaysia, he met up with Hisham and they had an interesting discussion which apparently led to Lars (tongue-in-cheek?) suggesting Malaysian monetary policy should instead target the price of rubber and natural gas.

1. How can Singapore have a public debt equal to 100% of GDP, if they run big surpluses most years? Is it because the government has offsetting assets?

2. Why is it a problem for them to purchase T-bills? Is it simply the low rate of return that you object to?

They state runs up a large surplus which it promptly invests, and then it sell even more bonds and invests those funds as well. Why not? If you have a monopoly on market-beating investment opportunities (and you should: you are a state which has both an ultra-long-lived time horizon and arbitrary future taxation powers), that is exactly what you should be doing.

As per the Singapore Ministry of Finance:

The Singapore Government does not have any external debt. Two types of domestic debt securities are issued for reasons unrelated to the Government’s fiscal needs: (1) Singapore Government Securities are issued to develop the domestic debt market; (2) Special Singapore Government Securities are non-tradable bonds issued specifically to meet the investment needs of the Central Provident Fund (CPF), Singapore’s national pension fund. …

Proceeds from the Singapore Government’s borrowing are invested. The Government’s assets include investments in the Government of Singapore Investment Corporation and the Temasek Holdings.

The investment returns are more than sufficient to cover the debt servicing costs. The Singapore Government also has a strong balance sheet, with assets well in excess of its liabilities.

In essence, instead of the CPF investing directly, it sells to the Singapore government which sells to GIC and Temasek.

Most of the debt is in (2), not (1). Regardless, note that since (1) is about industrial policy – the MoF actively seeks to sell cheap debt so that someone ends up holding Singapore government debt, and therefore banks in Singapore instead of Hong Kong – using it as the monetary policy instrument would contradict this policy. In any case, small open economies generally use forex to conduct open market operations anyway. This just tells us that Singapore thinks that Treasuries are close substitutes for the dollar. But we knew that already – the whole market thinks Treasuries are close substitute for the dollar!

Lots of really sophisticated discussion here. I have to congratulate Scott again on his (habitual!) differentiated analysis, and his commenters’ too. I much prefer this blogging style to the more typical shoot from the hip kind found elsewhere, say, the linked Bryan Caplan post. There, Bryan essentially says it felt good being made feel good by policy makers. But you don’t get much impression of reality on the ground from his post nor do you get any kind of deeper analysis (although he did get some detailed replies). In Scott’s blog you actually learn something and the ensuing discussion pushes it even further.

Singapore has a unique system. We do not borrow to fund the Government Budget, as the Constitution as well as the Government Securities Act prevents us from doing so. Furthermore, the Government is required to run a balanced budget over every term of government, which is about 4 to 5 years. Government debt issuances are therefore invested and not spent on the Budget.

Sir,
Singapore does not have universal healthcare coverage!
Out of pocket spending is a dominant source of financing healthcare expenditure; and medical savings accounts finance <10 % of total health expenditure.

I tried looking for a definition of “universal health care” only to discover that the concept seems somewhat fuzzy on the edges. At one end, some people (e.g., the most recent incarnation of WHO) use the term as implying a move away from user fees towards financing via taxation, while others are not so committed to this specific modes of financing but emphasize the more general idea of enduring that health care (and related financial protection) to all citizens of a country.

In the case of Singapore, on the one hand, there is quite a bit of tax funded subsidies for, e.g., hospitalization and major procedures, government mandated insurance coverage for extra large expenditures, and even a government run endowment fund of last resort for the needy.

But on the other hand, there is also a firm commitment to make sure that individuals have ‘skin in the game’ by requiring some sort of out of pocket co-payment (relatedly, there are strict limits to how much one can draw from one’s HSA (Medisave) and for what purposes). In addition, a lot of primary care is delivered by the private sector, for which one usually cannot draw upon one’s HSA.

So, depending on one’s metric, Singapore either have a universal health care system, or a hybrid system. Any good leads on what is the state of art as far as the idea of universal health care is supposed to mean nowadays?

The top U.S. tax rate next year after the passage of the Jan. 2, 2013 American Taxpayer Relief Act of 2012 set the top rate at 39.6%. All state taxes are subtracted first from federal taxes owed, so Texans – and taxpayers in other states – keep more than the 56% you claim, surely.

Philemon, A hybrid system is usually considered universal if everyone’s covered in one way or another.

Chuck, That was a joke.

Shelly. Yes, the big lie that the government keeps repeating. The top federal income tax rate this year is 43.4%.

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Welcome to a new blog on the endlessly perplexing problem of monetary policy. You’ll quickly notice that I am not a natural blogger, yet I feel compelled by recent events to give it a shot. Read more...

Bio

My name is Scott Sumner and I have taught economics at Bentley University for the past 27 years. I earned a BA in economics at Wisconsin and a PhD at Chicago. My research has been in the field of monetary economics, particularly the role of the gold standard in the Great Depression. I had just begun research on the relationship between cultural values and neoliberal reforms, when I got pulled back into monetary economics by the current crisis.